Gladstone Capital Corporation (GLAD) is set up as a business development company and it is focused on making debt and equity investments in small and medium sized companies. It makes term loans, subordinated loans, junior loans, and equity investments in companies that have growth potential, solid management teams, strong cash flow and adequate collateral to secure the loan. It typically makes loans in amounts that range from $5 to $20 million.
Gladstone makes investments in a number of industries which includes: food and paper products, home care equipment, publishing, technology, equipment manufacturing, and others. It has a portfolio that includes investments in companies like: ACME Cryogenics (a manufacturer of manifolds), Allison Publications, Inc. (a publisher of magazines and newspapers), BAS Broadcasting, Inc., (which operates AM and FM radio stations), Clinton Aluminum (a maker of aluminum sheets), Country Club Enterprises (which makes golf carts), Profit Systems, Inc. (which offers software to furniture retailers), and many more. This portfolio diversification reduces risks for the company and its shareholders. Here are 3 reasons to consider buying the stock:
1) Gladstone pays a monthly dividend of 7 cents per share. While most companies pay a quarterly dividend, this one pays investors on a much more regular basis. Monthly dividends are far more ideal for income investors as most people get bills on a monthly basis.
2) Gladstone recently reported solid financial results. For the quarter ended June 30, 2012, net investment income was $4.9 million, or 23 cents per share. This compares favorably to $4.5 million, or 22 cents per share, for the same period last year. The company also reported that net asset value was $8.91 per share at the end of the quarter. This indicates that the stock is trading below book value which is often seen as a sign of undervaluation by value investors.
3) This stock offers a yield that few others can beat. It's tough to find ways to generate yield with the Federal Reserve holding rates at historically low levels. It's likely to stay that way for at least a couple more years, and that is why investors should think about what a stock like Gladstone could return in the next 3 years or so. Many popular dividend stocks have been bid up close to 52-week highs, and that has pushed the yields lower. For example, pharmaceutical giant Pfizer (PFE) yields 3.7%, the world's largest oil company Exxon Mobil (XOM) yields just 2.6%, and shares of the Coca Cola Company (KO), offer a 2.7% yield. With these stocks yielding around 2.6% to 3.7%, an investor holding these stocks might see total returns from dividends of about 10% over the next 3 years or so. While these stocks make sense as core holdings for many investors, it also makes sense to look beyond the most popular dividend stocks, which now offer less than exciting yields, and consider stocks like Gladstone. With a yield of about 10%, this stock could generate more returns from dividends in a single year than many dividend stocks will offer in the next 3 to 4 years.
Here are some key points for GLAD:
Current share price: $8.62
The 52 week range is $6.46 to $9.33
Earnings estimates for 2012: 92 cents per share
Earnings estimates for 2013: 88 cents per share
Annual dividend: 84 cents per share which yields about 10%
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Disclosure: I have no positions in any stocks mentioned, and no plans to initiate any positions within the next 72 hours.